Speech by The Rt Hon The Lord Mayor of London at the FRC Conference 2016

Culture to Capital: aligning corporate behaviour with long term performance

20 September 2016

Ladies and Gentlemen.

Good morning and welcome to The Financial Reporting Council’s 2016 conference on ‘Culture to Capital: aligning corporate behaviour with long term performance’.

Almost two weeks ago, PwC released its latest ‘Cities of Opportunity Index’ of 30 major global hubs and, for the second year running, London came out on top.

We beat all other cities in terms of economic clout, intellectual capital, innovation, transport connectivity and, importantly, quality of life – and the report made reassuring post-referendum reading for everyone who cares about the sustainable success of the City of London.

The report also included an intriguing section on the characteristics shared by the most successful global cities. And at number three, they opined, “a great city delivers shared good”.

“A great city… delivers shared good”.

Well, I agree. A city’s residents, employees and visitors – not to mention the wider nation – want to feel part of that city’s success. They want to be able to identify it, benefit from it and take pride in it.

In my view, the way for a business to ensure ‘shared good’ is for its board to take corporate governance seriously, embedding the right culture and values from root to branch.

That has always been the case. But what’s different today, in an age of forensic scrutiny, is what happens when companies – particularly visible ones – fail to do that.

The fallout can be very rapid and very public. Social media campaigns, 24 hour rolling news and co-ordinated shareholder revolts. It may not always be proportionate, or not always be fair.

More than one business has felt the lash of that particular cat o' nine tails over the past few months. And it isn’t just in the private sector. An NHS trust attracted huge opprobrium recently when its sacked chief executive was immediately rehired, by the same Trust, in a newly-created, nominally different role on exactly the same salary, without an open application process. And across in Westminster, David Cameron’s final Honours list, heavy with friends and advisors, didn’t altogether go down well.

Each of these cases caused a huge amount of damage to people and organisations. It’s as Warren Buffett said: it takes 20 years to build a reputation… and five minutes to ruin it.

But there’s a flip-side to that coin.

Greater public scrutiny means news of successes spreads faster too, creating greater public trust. Those successes can be in the community, like corporate social responsibility. Or they can be successes of governance.

Companies with cultures of responsibility and transparency can build up a glowing reputation far faster than the 20 years Mr Buffett cited. And that reputation can improve sales, gild even the most impressive public images and, importantly, leads to greater employee satisfaction.

I know that the FRC website includes many case studies of companies that have done this – from BAE systems’ work to improve their relationship with the unions, to Marks and Spencer’s investment in reducing waste across its supply chain, resulting in half-a-billion pounds worth of savings since 2007.

In other words, a healthy corporate culture absolutely can – and very likely will – contribute to long term performance. In your words, Sir Win, “protecting and enhancing the value of an organisation and helping to differentiate it from its rivals.”

That’s what we’re here to discuss, with a range of speeches and discussions addressing all sorts of corporate culture and behaviour issues, including the thorny question of executive pay.

We may not like to discuss that last one. It’s certainly a contentious, impassioned area for debate. But nevertheless, in looking at it, we must always bear in mind that phrase from the PwC report – “a great city delivers shared good”.

The argument that the very top level of pay serves to entice the very best talent really is true – as is the fact that the higher the pay, the higher the tax revenue. Both of these things can contribute to ‘shared good’. But it’s also true that if a company is perceived as offering disproportionate remuneration, not linked to performance or customer service, then trust can take a hit.

That message has now reached Downing Street. The Prime Minister, Theresa May, has proposed making shareholder votes on executive pay legally binding rather than advisory.

I know that today’s speakers and panellists will explore the issue thoroughly, along with all facets of board leadership. But as Lord Mayor I’m an ambassador for the UK’s financial and professional services, and I’d like to end on one reflection.

I’ve visited almost a dozen UK cities during my time in office, and nearly 30 different countries. I know the good that City firms do for ordinary, working people all over the world. Growing pensions… funding infrastructure… providing education and training… unlocking growth… creating jobs, wealth and prosperity.

How often have we in the City talked about ‘doing the right thing’? Well I think that these are the right things. We should celebrate these, and promote them, and make sure that it’s these achievements, these vital contributions to society, that people think of when they think of the City. That is how we will prove our contribution to that all-important ‘shared good’.

The incentives are there. Greater long-term value, investor confidence, and that most priceless of assets: public trust.

These are the features of great business. And by pursuing them tirelessly, at every turn, boards – and indeed employees at all levels – help to create shared good in all its aspects.

This fantastic conference, and the FRC’s new report on Corporate Culture, represent two more steps along this long but vital path.